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CEE MARKETS-Czech bond retreats, central banker says no early end to crown cap
January 18, 2017 / 11:11 AM / a year ago

CEE MARKETS-Czech bond retreats, central banker says no early end to crown cap

* Czech central banker rules out Swiss-style FX cap exit
    * Czech 2-year bond yield rises further off record low
    * Polish wages data may surprise on the downside-analysts

    By Sandor Peto and Jakub Iglewski
    BUDAPEST/WARSAW, Jan 18 (Reuters) - Czech two-year
government bond yields climbed further off record lows on
Wednesday as a central banker said investors were wrong to
expect an early lifting of the cap on the crown currency. 
    The central bank (CNB) introduced the cap in late 2013 to
fight deflation risks by keeping the crown weaker than
27 against the euro.
    CNB board member Lubomir Lizal said the bank still expected
to abandon the ceiling around mid-2017, but investors were wrong
to speculate on an early move akin to the Swiss central bank's
shock withdrawal of its cap on the franc two years
ago.
    Lizal also told a conference in Vienna the market was
"completely overbought" on the crown. 
    The CNB has bought billions of euros in the market this
month to keep the crown below the cap.
    The bid yield on 2-year Czech government bonds had risen by
7 basis points (bps) to -1.008 percent by 1022 GMT, climbing off
the record low of -1.247 percent hit a week ago, but still 29
bps below the corresponding safe-haven Bund yield.
    But investors still expect flows into crowns to continue as
the time for the lifting of the cap approaches.
    "We believe that the inflow into korunas (crowns) may again
grow significantly in late March...," KBC analysts said in a
note. "As a result, forward exchange rates may theoretically
slide even deeper below CZK 27.00 per EUR," they added.
    In six-month forwards, the crown traded at an
implied rate of 26.703, almost flat from Tuesday and off last
week's 3-year highs for the crown of 26.584.
    Central European currencies were mixed against the euro,
with the forint and the zloty easing 0.1 and
0.25 percent respectively, while the leu firmed 0.1
percent.
    Poland is due to release December employment and corporate
sector wages figures at 1300 GMT.
    "We expect a strong surprise to the downside (in wage
growth) due to a lack of bonuses in the mining sector," ING BSK
analysts said in a note, adding this was likely to push Polish
government bond yields slightly lower and weaken the zloty.
    While Polish bonds were flat, Romanian government bonds
firmed slightly, with the yield on the 10-year paper bid at 3.43
percent, down 8 basis points.
    "However, given domestic fiscal uncertainties, tighter 10Y
spreads versus Bunds/peers as of late and an expected CPI
increase during 2017, the buying interest might prove
short-lived," ING analysts said in a note.
    
              CEE        SNAPS   AT  1122          
              MARKETS    HOT    CET           
                         CURRENCIES                
                         Lates  Previ  Daily  Chang
                         t      ous           e
                         bid    close  chang  in
                                       e      2017
 Czech crown             27.02  27.02   +0.0  -0.06
                            20     45     1%      %
 Hungary                 308.0  307.3  -0.25  0.25%
 forint                    600    000      %  
 Polish                  4.376  4.372  -0.09  0.64%
 zloty                       0      1      %  
 Romanian                4.500  4.503   +0.0  0.78%
 leu                         0      4     7%  
 Croatian                7.533  7.529  -0.04  0.29%
 kuna                        0      8      %  
 Serbian                 123.7  123.7   +0.0  -0.33
 dinar                     600    600     0%      %
 Note: daily  calculate  previ  close  1800        
 change       d from     ous    at     CET    
                         STOCK                     
                         S                    
                         Lates  Previ  Daily  Chang
                         t      ous           e
                                close  chang  in
                                       e      2017
 Prague                  923.4  923.2   +0.0   +0.1
                             0      7     1%     9%
 Budapest                32808  32782   +0.0   +2.5
                           .33    .26     8%     2%
 Warsaw                  2015.  2015.   +0.0   +3.4
                            45     28     1%     7%
 Bucharest               7171.  7162.   +0.1   +1.2
                            99     29     4%     3%
 Ljubljana               734.4  732.9   +0.2   +2.3
                             5      8     0%     5%
 Zagreb                  2073.  2078.  -0.24   +3.9
                            61     59      %     5%
 Belgrade     <.BELEX15  717.7  715.2   +0.3   +0.0
              >              6      1     6%     5%
 Sofia                   605.2  606.4  -0.20   +3.2
                             6      6      %     1%
                         BONDS                     
                         Yield  Yield  Sprea  Daily
                                       d      
                         (bid)  chang  vs     chang
                                e      Bund   e in
 Czech                                        sprea
 Republic                                     d
   2-year     <CZ2YT=RR  -1.00  0.066  -028b   +6bp
              >              8            ps      s
   5-year     <CZ5YT=RR  -0.35  -0.01   +013  -3bps
              >              9      4    bps  
   10-year    <CZ10YT=R  0.366  0.016   +003  -1bps
              R>                         bps  
 Poland                                            
   2-year     <PL2YT=RR  2.012  -0.00   +274  -1bps
              >                     9    bps  
   5-year     <PL5YT=RR  2.917  0.013   +340   +0bp
              >                          bps      s
   10-year    <PL10YT=R   3.64  0.016   +331  -1bps
              R>                         bps  
              FORWARD    RATE   AGREEMENT          
                         3x6    6x9    9x12   3M
                                              inter
                                              bank
 Czech Rep            <   0.17   0.13   0.12      0
              PRIBOR=>                        
 Hungary              <   0.34   0.42   0.52    0.3
              BUBOR=>                         
 Poland               <   1.76   1.79   1.87   1.73
              WIBOR=>                         
 Note: FRA    are for                              
 quotes       ask                             
              prices                          
 **************************************************
 ************
 
 (Additional reporting by Luiza Ilie in Bucharest/Jason Hovet in
Prague; Editing by Mark Potter)

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